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The government needs to take a tougher line on high-interest lenders says the country's budgeting advice service after its research found on average those who take out the loans can't pay them back on time resulting in more debt.

A bill proposing changes to New Zealand's consumer credit law is due to be introduced to parliament next month.

It plans to cap the interest rates and fees to 100 per cent of a loan and introduce prescriptive requirements for lenders to test loan suitability.

But Tim Barnett, chief executive of the charity FinCap - the umbrella body for the budgeting advice services, said the proposed changes did not go far enough and meant New Zealand was falling behind other countries.

"New Zealand consumers need protection from these predatory companies. Our bottom line is that New Zealanders should get the same level of protection as the Australian Government has given their citizens. They don't.

"Although pleased that our coalition Government is moving to strengthen consumer credit law, their proposals fall well short of what is needed."

Barnett said the law change needed to include a cap on the interest rates charged and limit the number of loans a person could get to stop someone from going back for another loan.

He also urged a move to limit the percentage of a person's income used to pay off debt - in Australia those on a benefit had it capped at 20 per cent and there was talk of reducing that to 10 per cent.

He believed there also needed to be a faster way to penalise companies who broke the law - at the moment it could take years before a company was taken to court over a breach.

"Someone who operates outside of the law needs to be held to account quickly."

Barnett said New Zealand's debt collection laws were also weaker than those in other countries, pointing to the United States where borrowers were protected from harassment and once a debt was handed over to an agency the lender stopped charging interest and fees.

"Given a lot of the companies that operate in Australia also operate in New Zealand I don't see the sense in having a more liberal regime here."

Barnett's call comes on the back of research by the body which found most people who take out high interest loans do so because they are unable to borrow elsewhere.

On average high-interest borrowers were unable to pay the loans back on time resulting in more fees and debt and the growth of high-interest loans had been marked in recent years.

The loans, which have an interest rate of more than 50 per cent, could see a person borrow $100 for two weeks being required to pay back $250 on time - missing that would result in more fees.

The agencies surveyed reported that loans of this type were often applied for online and were easy to get, even with a poor credit rating.

The most common reason for people to borrow was to cover living costs, running a vehicle or rent.

"As they are usually short term, they appear to fill a gap between the cost of basic needs and the ability to pay for these.

"This means, in effect, that many whanau end up struggling to pay their basic costs plus the very high burden or servicing, repaying a high-cost loan."

It found most people who take out high-cost loans did so because they can't get credit elsewhere but had low or very low understanding of the fees or costs.

Most had more than one high-cost loan.

But 90 per cent of the budgeting agencies believed their clients were worse off by having borrowed the money.

Half of their clients with high-interest loans ended up being referred to a debt collection agency which then added collection fees to the debt and, in many cases, the lender continued to charge interest on the debt.

The survey found a belief that harmful behaviour from debt collection agencies far outweighed helpful action with loans.

That behaviour included repeated phone calls, threatening letters and visits to people's homes with some reporting cases of Facebook stalking.

Barnett said the bill was a once in a generation chance to get it right.

"Most households in financial crisis include children. Principled and workable law in this area will reduce the poverty they face, and free funds for genuine essentials."